Medpace Holdings, Inc.: Initiation of Research Coverage

Tuesday, September 6, 2016

William Blair & Company initiated research coverage of Medpace Holdings, Inc. (MEDP $30.70), a top 10 clinical contract research organization (CRO) with a focus on serving small and midsize biopharma clients.

Analyst John Kreger estimated the company would generate adjusted EPS of $1.46 in 2016 and $1.53 in 2017 and believes organic revenue growth for Medpace can be sustained in the low double digits.

“We believe Medpace stands out among the clinical CROs in many respects,” Kreger said, “including client segmentation, operating model, backlog recognition, and profitability. Medpace focuses on clinical trial management across all major therapeutic areas, with no single category contributing more than 20% of revenue. Compared with its larger peers, the company has much greater exposure to small and midsize clients. Given that the company’s focus is on the part of the biopharmaceutical industry that is experiencing the most significant growth in innovation and R&D spending, we believe Medpace is well positioned to generate organic revenue growth in the teens over the next several years.”

Kreger continued, “The company has refined and remained disciplined to an operating model that insists on full-service integration and control over day-to-day execution. While this approach narrows the addressable client opportunity, it has also produced organic growth and profit margins that lead its peer group. Though we view the business model as being susceptible to a drop-off in biotech funding, we believe that the company’s outsized exposure to smaller clients provides the potential for organic revenue growth to be among the best in the industry. We also believe the company has compensated for this higher client risk profile with greater dispersion and an extremely conservative bookings recognition policy.”

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